Business context and reporting period
American Superconductor Corporation (AMSC) filed this unaudited Form 10-Q for its fiscal third quarter and nine months ended December 31, 2022. AMSC supplies power-grid resiliency and Navy ship-protection solutions through its Grid segment, and power electronics, turbine designs and support services through its Wind segment. Financial amounts below are in U.S. dollars; millions unless otherwise noted.
Financial performance and position
| Metric | Three months ended Dec. 31, 2022 | Prior-year quarter | Nine months ended Dec. 31, 2022 | Prior-year period |
|---|---|---|---|---|
| Revenue | $23.9 | $26.8 | $74.2 | $80.1 |
| Gross margin | $0.5; 2% | $3.6; 13% | $4.7; 6% | $10.2; 13% |
| Operating loss | $9.2 | $4.4 | $26.2 | $16.2 |
| Net loss | $9.6 | $4.3 | $28.2 | $14.2 |
| Diluted loss per share | $0.34 | $0.16 | $1.01 | $0.52 |
- Grid revenue was $20.8 million for the quarter and $66.3 million year to date, down 17% and 9%, respectively, primarily due to lower D-VAR revenue. Wind revenue was $3.1 million and $7.9 million, up 76% and 14%, respectively, with quarterly growth driven by additional electrical control system shipments to Inox.
- Operating cash used was $17.1 million for the nine months, compared with $15.9 million a year earlier. Investing cash use was $1.2 million; financing provided $0.1 million. The filing does not provide quarterly cash-flow figures.
- At December 31, cash and cash equivalents were $23.7 million, with another $7.7 million in restricted cash; combined cash, cash equivalents and restricted cash were $31.4 million, down from $49.5 million at March 31, 2022. Current assets were $94.2 million and current liabilities $68.1 million.
- Total debt was approximately $0.1 million ($0.072 million current and $0.035 million long-term); lease liabilities totaled $3.2 million. Accumulated deficit was $1.049 billion and stockholders’ equity was $87.2 million.
Material changes and unusual items
- Gross margin fell substantially year over year. Management cited lower revenue, unfavorable product mix, inflationary supply costs and contract losses. Neeltran-related long-term contracts required design changes and faced higher material costs, increasing contract-loss accruals by $1.6 million in the quarter and $3.2 million year to date.
- Operating loss widened, driven by weaker Grid gross margins and higher operating expenses. R&D expense decreased, while SG&A rose. The prior-year comparison also included larger gains from remeasuring NEPSI acquisition contingent consideration.
- The nine-month 2022 results included a $1.9 million China-dissolution charge associated with liquidation of the China entity, alongside a $1.9 million foreign-currency translation gain in other comprehensive income.
- Inventory rose to $38.7 million from $23.7 million at March 31, 2022; operating cash use was affected primarily by inventory purchases, partly offset by receivable collections and increased deferred revenue.
Outlook, risks and contingencies
- AMSC gave no formal revenue or earnings guidance. Management said it believes available liquidity is sufficient for operations and capital expenditures for the next twelve months, while emphasizing dependence on revenue growth, improved gross margins, cost control and potentially raising capital. A shelf registration permits offers of up to $250 million of securities and expires in February 2024; future funding and terms are not assured.
- In January 2023, after the reporting date, AMSC reduced its global workforce by approximately 5%. It expects immaterial cash expense and annualized savings of approximately $5 million beginning in fiscal 2023.
- Management cited inflation, supply delays, production disruption, labor availability, macroeconomic uncertainty and the Russia-Ukraine war as potential material risks. The company has a history of operating losses and negative operating cash flows and may require additional financing.
- Outstanding performance obligations were approximately $112.1 million expected to be recognized within twelve months and $30.4 million over thirteen to sixty months. Timing depends on customer actions; the filing cautions that backlog may not convert to sales as expected. Inox represented 11% of quarterly revenue, and management identified reliance on Inox and its ability to execute orders as a liquidity and revenue consideration.
- Restricted cash primarily secures letters of credit and project obligations, including $5.0 million collateral related to the ComEd subcontract. AMSC expected the letter of credit to be terminated and the collateral returned during the quarter ending March 31, 2023. The filing reports no legal proceedings in Part II and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether margins recover as supply costs, production constraints and the identified contract losses evolve.
- Whether the $112.1 million near-term performance obligations convert to revenue on the expected schedule, including the customer-dependent Inox shipments.
- Cash burn, inventory levels, restricted-cash availability and whether the expected ComEd collateral release occurs.
- Whether the workforce reduction delivers the projected savings and how it affects operating capacity and execution.
- Whether AMSC needs external capital, and the potential dilution or other terms of any securities issued under its shelf registration.